By Amanda Morrall
1) Retirement miscalculations
Calculators are great but sometimes you have to question their accuracy.
I'm not talking basic facts rather more complex calculations based on certain assumptions i.e. how much you'll need to live comfortably in retirement.
It's such a hugely subjective and personal question that a three-input calculation (age, income and projected returns on retirement investments) couldn't possibly predict with any accuracy the actual amount you'll need.
So suspicious was I of the whole business, I used to ignore it. I just didn't see the point of scaring myself witless with a 10-second exercise that told me I'd need to pull $400K from a hat to bridge the gap between where I am now and where I need to end up so I don't end up having to work at McDonald's at 70.
I used to play through a number of scenarios that would render the figures meaningless like: the possibility of getting hit by a bus; winning the lottery; repartnering with someone who wasn't financially delinquent; or maybe publishing a bestseller.
I know better now than to live in fantasy land. Rather than avoid the calculators and what they're telling me, I just add a healthy dose of reality into the equation and allow for a range of circumstances that forces me to address the worst case scenario i.e. working with my present reality.
Anyway, I was comforted to learn I'm not the only one questioning the accuracy of retirement calculators.
Bloomberg explains why the retirement calculator may be lying to you. HT to our Parliamentary reporter Alex for spotting this. The bit about fees should be a wake up call for us all.
Monte Carlo simulations are useful but can have shortcomings. William Bernstein, a principal at Efficient Frontier Advisors and author of "The Investor's Manifesto," worries they can give a false sense of security since, for the most part, they assume normally distributed returns -- not the dramatic market meltdowns of recent years. Fidelity's calculator shows savers two probabilities: one that assumes the historical rates of return are borne out, and another shows how savers would fare if they had below-average outcomes.
If using any of the calculations shows that a savings goal needs to be hiked, one way to eke more return out of a portfolio is to focus on fees. Forking over 1 percent to 1.5 percent of your money each year to cover a mutual fund's expense ratio may have been easy to overlook in the 1990s when the S&P 500's annualized return was 18.2 percent. If returns are 6 percent or 7 percent over the next decade, a 1.5 percent expense ratio cuts a net return by about 25 percent.
"In this day and age, there's simply no excuse for paying [an expense ratio of] more than 0.25 percent for a portfolio of U.S. stocks and bonds, and maybe 0.5 percent for a portfolio of foreign stocks," says Bernstein.
2) The cheap weight loss programme
One of my colleagues (a bloke) has the enviable "problem" of having to make a real effort to eat to keep on weight.
Most of us wish we had this problem as it would save us hours at the gym and more importantly all that money we shell out to use their sweaty equipment. I'm not a gym bunny. Yoga is my bliss and I found a way to avoid shelling out on this too with discounted or free classes for teaching it.
But there's a million ways to skin a cat or in this case lose weight without losing your shirt or God forbid going on the Subway diet.
The best advice I heard was from the lovely Jennifer Aniston (also a yogini) who, when asked the secret to her amazing physique responded: "Don't eat crap.'' Pretty simple formula really.
3) Operation cool down
After ruining one too many family dinners by talking politics and/or climate change, I've expanded my repertoire of small talk. Still, I have my moments. The issues are too big to be ignored. Fortunately, I can raise the topic here and then beg off to avoid getting caught in the cross fire.
4) Payroll giving
I like to give. I once gifted all my birthday money to UNICEF. I felt like a million bucks afterwards even though I was a few hundred poorer.
I've got three charities that I donate to on a regular basis now. No, I'm not Ms. Moneybags, it's money that I'd probably spend on coffees or yoga and given the lack of time I have to volunteer, I feel it's my duty. Oddly, I'm not Catholic.
Apart from the feel good factor, donees are rewarded for their benevolence. For every buck you give, even on a fiver, you get 33.3% back. The biggest pain for me is keeping track of the tax receipts. Fortunately payroll giving introduced a year or so ago makes this process way easier. (Hoping we'll get it here one day.)
Through employers who have adjusted their payroll systems, you can have donations deducted automatically from your paycheque and be credited right away for the deduction.
Hopefully this has had a decent uptake.
First bonds, now gold. Interest.co.nz today is launching yet another new section. This one will be of interest to the gold bugs out there. Our new gold section will keep tabs on buy and sell rates on gold coins and bars as well as platinum.
Very happy to report it has a home in personal finance section so one more reason to visit me in personal finance.
If you have any feedback or suggestions for the section, feel free to email me directly: email@example.com